Refco executives pulled $1.3b cash out of till

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In the year before Refco went public and then promptly made the
fourth-largest bankruptcy filing in US history, insiders at the
firm pulled out more than $US1 billion ($1.33 billion) in cash,
according to its financial statements.

One insider, Robert Trosten, received $US45 million when he left
his post as chief financial officer a year ago, according to
testimony at an arbitration hearing earlier this year.

Much mystery still surrounds the collapse of Refco, a
decades-old firm that conducted billions of dollars in trades in
foreign currencies, US Treasury securities, commodities, futures
and options for more than 200,000 clients last year. But investors
and customers facing losses will want to understand how insiders
could drain $US1.124 billion from the firm's coffers in the year or
so leading up to its collapse.

To some degree, the money that insiders took out is not
surprising, given that Refco's executives sold a big stake in the
company to Thomas H. Lee Partners, a private equity firm in Boston,
in August 2004. Indeed, most of the money insiders received -
$US1.057 billion - was paid upon the completion of that deal.

Two Refco insiders were on the receiving end of those payouts:
Phillip Bennett, the former chief executive who has been charged
with defrauding investors by concealing a $US435 million loan he
arranged with the firm, and Tone Grant, Refco's longtime CEO before
Bennett.

Bennett has denied the charges of securities fraud.

Creditors of Refco will almost certainly try to recover what
they can from payments made by the company to its top executives in
the months before its demise. While compensation, like salaries,
was typically not recoverable, payments made in the sale of a
company or dividends paid to its owners were fair game if the
company was insolvent, said Denis Cronin, a bankruptcy lawyer at
Cronin & Vris in New York.

"Dividends or payments with respect to their stock ownership,
that is vulnerable to what is known in bankruptcy as a fraudulent
conveyance or distribution," Mr Cronin said. "Fraudulent conveyance
is a payment made while the company was insolvent. When you make
those payments in that time frame, then creditors have a right to
recover them."

The $US1.057 billion came in two chunks, according to the Refco
prospectus. First, Bennett and Mr Grant appear to have shared in a
$US550 million cash payment in the transaction with Thomas H. Lee
Partners; then, Bennett appears to have received another $507
million in the deal.

Bennett did not cash out of Refco completely. At the time of the
deal with Thomas H. Lee Partners, he agreed to roll over a stake in
Refco worth $US383 million, the prospectus said. Mr Lee boasted
that Bennett's stake in Refco was an indication of his confidence
in the firm.

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1129775901603-smh.com.auhttp://www.smh.com.au/news/business/refco-executives-pulled-13b-cash-out-of-till/2005/10/20/1129775901603.htmlsmh.com.auThe New York Times2005-10-21Refco executives pulled $1.3b cash out of tillGretchen Morgenson and Jenny Anderson{Business}BusinessNewshttp://www.smh.com.au/ffximage/2005/10/20/refco_wideweb__430x342.jpg